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Goldman and AIG

Posted by Larry Doyle on March 21, 2009 5:49 AM |

There has been extensive speculation that Goldman Sachs unjustifiably benefited from the weakness at AIG over the last 6 months. While conspiracy theorists can and will have a field day with this story, at its core I think Goldman did what any well run firm should always do — protect its shareholders.

While the stock values of Merrill Lynch, Morgan Stanley, and Bank of America flirted with total disaster, Goldman Sachs traded down but bottomed out at approximately $50 a share. That price does not strike me as indicative of a firm on the brink of bankruptcy. As Goldman now reveals, it had significant exposure to AIG but it also significantly hedged this exposure to AIG via other transactions. Thus, Goldman would have been negatively impacted by an AIG bankruptcy but not fatally impacted.

Should Goldman have taken a discount on payments it received from AIG? We may never know the details on this front. However, any publicly held company is responsible first and foremost to its shareholders. I do not begrudge the fact that Goldman Rejected Settling of AIG Trades at a Discount

Was Hank Paulson conflicted in his dealings between Goldman and AIG given his previous position at Goldman? Perhaps he was. Should he have recused himself? Perhaps. Did he knowingly side with Goldman at the expense of AIG and the American taxpayer? Nobody has provided any clearcut evidence of that.

Did Paulson, Geithner, and other Treasury and Federal Reserve officials view negotiating discounts on payments from AIG to Goldman and other counterparties as too unwieldy and problematic? Again, we will likely never know.

All this said, it is not the responsibility of Goldman Sachs to voluntarily offer discounts on contracts written in good faith between willing counterparties. Goldman is in the risk business. It seems to have prudently and properly managed its risk throughout this turmoil.

The burden should be on the government and AIG to negotiate discounts with its creditors. In the meantime, those creditors are beholden to their shareholders.

It’s called capitalism!!

LD

P.S. After sleeping on this, I also believe it is not implausible that Wall Street pushed Geithner as Treasury Secretary and Schapiro as head of the SEC because they were easily controlled and manipulated. I have seen little to nothing to dissuade me of this opinion in the first 6 to 8 weeks of this administration.

  • WJD

    Larry:

    Your 11/21/08 post indicated that the “markets respect Geithner”. What happened. Did the powers that be on Wall Stree see one of their own, an individual whom they could control and manipulate?

    Keep up the good work.

  • Larry Doyle

    WJD….boy, nothing gets past the crowd here at Sense on Cents. You are correct in indicating the point I wrote about Geithner. How the heck did you recall which post?

    Well, in regard to our Treasury Secretary, “markets fluctuate” and his stock currently could not be much lower.

    • TeakWoodKite

      The beauty of an Indexed Mind.

      LD, if you look at what happened with Bear Stearns , ome very early bail outs (Sen.Dodd), I was convinced that Wall Street would send its minions to cover home plate…

      Turbo man has an interesting past…I had the random thought about BCCI and Geitner…and where folks like Auchi appear…

      1988 Blackstone forms BlackRock as mortgage investment subsidiary. Its CEO is Peter Peterson, also CEO of the Council on Foreign Relations, for which Henry Kissinger, Brent Scowcroft, and Robert Rubin are officers.
1986 East Asian International economic specialist, Timothy Geithner joins Kissinger and Associates, a major Chinese Financial lobbying firm with strong ties to the Kingdom of Saudi Arabia. At the time both Kissinger and Brent Scowcroft are partners, as well as international economist Alan Stoga. It is not clear whether Geitner worked with Stoga at this time, but his expertise in China would be welcome in its China Joint Venture.

      
1986-1989 Kissinger Associates, Stoga and consultant ambassador Sergio Correa discuss a merger between BCCI and Kissinger Associates. Correa acts as a front man for BCCI in acquisition explorations as a paid retained consultant to both BCCI, and separately to Kissinger Associates. toga arranges contacts between BCCI Saudi linked executives Gaith Pharaon and Abol Helmy. It is not known whether Geithner worked on these transactions.

      
c. 1989 BCCI is indicted and Kissinger Associates ends discussions.
      
Geithner leaves Kissinger Associates and begins work as a civil servant in the Treasury Department. He is confirmed as Asst. Sec. for International Affairs in Treasury working for Secretary Rubin of the Clinton Administration.[Senior executive at Goldman Sachs and later Citibank a Saudi controlled foreign bank]. Rubin also serves as an officer of the CFR managed by Peter Peterson CEO of Blackstone.
1992 BlackRock is spinoff Blackstone and becomes independent.

      • TeakWoodKite

        oops Link…
        http://aconstantineblacklist.blogspot.com/2009/02/scam-bear-stearns-timothy-geithner-and.html.

        All these historical dots lead to the present.

        • Larry Doyle

          Wow. Great job connecting all of these dots.

          It was interesting to view both Geithner’s and Schapiro’s confirmation hearings. In light of everything that had occurred on Wall Street in 2008, both of them should have been more aggressively grilled. The fact that they were not, does make one wonder whether “the fix was in.”

          Interesting link to BCCI. Great job!!

  • Donnie

    LD When is it time to cut loses and run?How long will it take Washington to realize that there stimulis is not working?I think it is time to step back and look at the whole picture and not be afraid to admit some of the decisions were wrong and fix them.Its a part of business.

    PS neighbor doing fine and will be home Sunday.Quite banged up but very lucky.

  • Larry Doyle

    Donnie…I think your point is gaining momentum in public forums. Are we so far in that we are past the point of no return? Is that a light at the end of the tunnel or a train coming the other way?

    As a result, confidence is declining and was not very high in the first place.

    I think the chances of the government backing away at this juncture are slim and less than that.

    Good news about DC. Thanks.






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